Aurelia Butler

What to make of the UK? It’s an economy supposedly in the throes of a “cost of living crisis” and yet consumer demand remains resilient enough that the central bank has now raised interest rates 13 times in a row to try to reduce stubbornly high inflation.It’s not as if no one is struggling. Food bank use has surged. Shop owners have started to add security tags to products such as steaks, butter and cheese amid the highest levels of theft in a decade. But plenty of people still seem willing and able to keep spending money on goods and services in spite of high inflation and tighter monetary policy. Official data last week showed significant increases in the cost of air fares, package holidays and live music events, while retail sales rose 0.3 per cent between April and May, confounding economists’ expectations of a 0.2 per cent fall. What’s going on?The housing market offers some clues. One of the most direct ways that monetary policy affects demand is through the rates people pay on their mortgages. But unlike in the late 1980s, when about 40 per cent of all households in England had mortgages, by 2021/22 the proportion was just 30 per cent. Meanwhile, the number of people who own their homes outright has climbed sharply as baby boomers have retired, from about 26 per cent in the late 80s to 35 per cent by 2021/22. In every region of England and Wales except London, there are now more homes owned outright than there are homes of any other type of tenure (such as rented or owned with a mortgage). That causes two problems. First, the power of monetary policy to cool the economy is blunted somewhat (compounded by the fact that many more people today are on fixed-term than variable mortgages, which slows down how higher rates filter through.) Of course, tighter monetary policy can work in other ways too, such as through the currency and by dissuading companies from investing and hiring. But that brings us to the second problem — that people may begin to see this tightening cycle as uneven and unfair. The pain of sharply higher mortgage rates is falling on the shoulders of fewer people this time around — and mortgage-holders are overwhelmingly working people, which means they are more exposed to any Bank of England-induced downturn in the labour market too. In contrast, two-thirds of those who own their homes outright are retired.It is easy to see how this could reignite intergenerational resentments. In the decade of super-loose monetary policy, young people lost out because house prices moved further out of reach, while delivering rising levels of wealth for older homeowners. In this new era of sharply rising rates, younger working people with mortgages may come to feel that they are once again absorbing the pain on behalf of society as a whole.That complaint is somewhat unfair — but not entirely so. It’s unfair because it ignores the counterfactual: it is likely that the decade after the great recession of 2008-09 would have been even worse for young people’s job prospects without supportive monetary policy. It is also the case that many older people suffered poor annuity rates during the period of low interest rates. And those who own their houses outright don’t all fit the stereotype of comfortable baby boomers with bountiful pensions. Data from the English Housing Survey suggests the distribution of income among outright owners is quite similar to that of private renters, whereas mortgage holders have more money coming in. As for the current moment, young people who don’t own yet might benefit eventually if house prices fall a lot (though they are suffering now from rising rents).Nonetheless, there is a kernel of truth to the complaint, especially for a cohort of people — now in their mid-30s — who have probably been pummelled twice by monetary policy over the past decade. Some of them will have seen house prices run away from them in their 20s, then scrimped and stretched to buy with a big mortgage fairly recently. According to the Institute for Fiscal Studies, disposable incomes for people with mortgages are set to fall by 8.3 per cent, with those aged 30 to 39 likely to be hit hardest with an 11 per cent drop.Given the need to get inflation down, it wouldn’t be wise for the government to help them with handouts. But it could and should consider how to use the tax system to spread the pain of cooling the economy more widely. Otherwise, a generation might conclude that monetary policy really just boils down to this: heads you lose; tails you also [email protected] More

LONDON (Reuters) – HSBC’s move to ditch its 45-floor Canary Wharf tower in favour of a much smaller development in central London is one of the most visible examples yet of an office downsizing trend that’s rocking commercial real estate markets globally.Europe’s largest bank told staff on Monday that it planned to quit the skyscraper that bears its name in the east London financial district and move some 8,000 workers to a redeveloped office complex overlooking St Paul’s Cathedral.A recent spate of downsizing moves by major employers comes as landlords and real estate developers already face a crunch from soaring financing costs, adding to pressure on the sector.Companies globally are ditching large office buildings at an unprecedented rate as home working takes hold after the COVID-19 pandemic and as businesses opt for greener offices to meet testing sustainability targets. It’s a trend that’s already challenging the business models of large office landlords and has the potential to reshape cities, property analysts and experts say.”Home working has shrunk the amount of space (HSBC) need. That won’t be unique to them,” said Tony Travers, director of the London School of Economics’ London research group.London’s traditional financial hub the City of London and Canary Wharf have competed for company headquarters since the 1980s, but competitive rents may lure companies that had previously balked at the cost back to city centres, Travers added. Around half of the world’s largest employers plan to reduce office space in the next three years, typically by 10% to 20%, a survey by property agent Knight Frank last month found. The ripple effects of so many companies slashing office space has significantly impacted wider markets. Real estate came top of an index of Europe’s most distressed sectors for the first quarter of 2023, according to data compiled by law firm Weil Gotshal & Manges, driven by a squeeze on valuations, liquidity and investment. Sweden in particular has been under the spotlight, given the high exposure its households and investors have to the real estate market. High debts, rising interest rates and a wilting economy have produced a toxic cocktail for local commercial property companies, with several cut to junk by rating agencies.The other major factor prompting office moves is the ticking clock of green targets set by many companies under pressure from investors, environmentalists and regulators.”For large businesses, the operational model has to change and the companies need to stand alongside – as far as they are able – the pursuit of green policies,” said Gerardine Davies, co-founder of investor Perenna Capital Management.’GENIE OUT OF THE BOTTLE’HSBC for its part has one of the most aggressive targets to cut office space among major employers, with a commitment to axe around 40% globally.The bank intends to move its headquarters to the revamped former offices of telecoms giant BT in late 2026. The so-called Panorama St Paul’s development has 556,000 square foot of space, according to the project’s website, around half the size of the 1.1 million sq ft tower HSBC leaves behind.BT itself relocated to a new smaller headquarters in nearby Aldgate in the City in 2021, which houses around 3,500 people and includes more flexible spaces for hybrid workers.HSBC’s move comes at an awkward time for Canary Wharf, when Swiss bank Credit Suisse’s long-running presence in the Docklands estate is also uncertain after its emergency takeover by UBS, which plans to axe thousands of jobs.The City of London Corporation, which runs the Square Mile financial district, was quick to trumpet HSBC’s shift on Monday, calling it a “huge vote of confidence for the City”. Canary Wharf Group, the Docklands commercial landlord, declined to comment.Canary Wharf Group has been trying to adapt to the times by diversifying away from its core area of strength of financial sector occupiers by developing a giant life sciences campus and building more flats, restaurants and bars.Credit rating agency Moody’s (NYSE:MCO) nonetheless downgraded the landlord’s ratings in May due to the tough outlook for the real estate sector.One of the Canary Wharf estate’s newer developments, the YY building – a recently completed redevelopment of Thomson Reuters (NYSE:TRI)’ former headquarters opposite Canary Wharf station – remains vacant, Bloomberg has reported. Property agents for YY did not respond to a Reuters request for comment.”The genie is out of the bottle,” said Andrew Mawson, founder of consultancy Advanced Workplace Associates. “Employees aren’t coming back to the office in the way that they used to.” More

The bank held its key policy rate steady at 6.25% for a second straight meeting on Thursday.”I think we will continue to maintain,” Diokno told reporters on Friday. “It will be a long pause. I don’t see any cut until we really have that strong evidence of a decline” in inflation, Diokno said. He is one of the seven members of the policy-making Monetary Board, which next meets on Aug. 17 to review policy under the leadership of a new central bank governor. President Ferdinand Marcos Jr on Friday named board member Eli Remolona as governor of Bangko Sentral ng Pilipinas, replacing Felipe Medalla, who oversaw the central bank’s most aggressive tightening in years.Since May last year, the central bank raised rates 425 basis points to combat inflation. It has slowed for four months to 6.1% in May but remains above the bank’s 2%-4% target. A strong majority in a Reuters poll forecast the bank would stay on hold for the rest of the year, though a few saw a rate cut as soon as year-end.”Our expectation is inflation could hit below 2% by the first quarter of next year because of the high base effect. That would be the time to consider cuts,” Diokno said. More